However, from Cargo Asia News, there is a new article on the "Go West" initiative I have mentioned before, but from the perspective of the Pearl River Delta (PRD). The article titled "Investors urged to "Go West" in the PRD" is written by Lily Su out of Zhuhai. Zhuhai, along with the rest of the PRD proximate to Hong Kong, can be found on the map in the PowerPoint file below:

Basically, the northern inland cities of China between the YRD and Beijing are getting a lot of business action and more inland cities West of Hong Kong want in on that party:

With the Beijing administration's "Go West'' policy showing some success, Guangdong cities are now taking up the same clarion call by urging companies to invest in the western region of the Pearl River Delta, away from the popular cities of Shenzhen and Dongguan. They point to lower land and labour costs which could put the companies on a better competitive footing.

The west bank of the Pearl River Delta lags behind in export-oriented manufacturing and logistics infrastructure, but is starting to build up. Major coastal cities in the region include Guangzhou, Zhongshan and Zhuhai. Foshan and Jiangmen (see the map above), located further inland, are also playing the cheap land and labour card.

Based on the next paragraph, "lags behind" feels like an understatement:

Compared to the east bank, which have top ranking ports such as Hong Kong and Shenzhen, the west bank has only small feeder ports and the container ports, except for Nansha, are still only on paper.Rail and road networks are also practically non-existent.There is no railway running through the western area in the PRD and most major highways such as the Taiyuan-Macau, Jiangmen-Zhuhai and Western Coastal Express are still partly under construction.

Even Nansha, the only container port open, seems to have its issues:

Nansha Port began operations in September 2004. It currently has four container berths and handled 1.08 million TEU last year. Before the end of 2006, it will get two more berths, boosting annual capacity to two million TEUs. The port, located in the southernmost region of Guangzhou, boasts of the shortest average distance to cities in the delta. But its has one disadvantage - it is upstream in the delta, which means it cannot accommodate 9,000 TEU plus vessels. Nansha quayside depth is 13m but Zhou Xiaoxi, vice director of Guangzhou Port Authority, said dredging is underway to increase draft to 15.5m.

From the accounts below, Zhuhai, as located in the map, seems to have the most potential. However, its development timeline is still in the distance:

Zhuhai, two hours further south, has better deep-water conditions but it is a feeder port and handles around 466,000 TEUs annually. Zhuhai Jiuzhou Container Ter-minals, a joint venture between Hutchison Port Holdings and the local government, handles 80 percent of Zhuhai's boxes, almost all of which are put on barges for Hong Kong.

Zhuhai is building another container port on the south side called Gaolan Port, the last of the three natural deep-water harbours in the delta. The other two are Yantian of Shenzhen and Kwai Chung of Hong Kong. The joint investors, Zhuhai government and Hutchison Port Holdings, hope to develop the port to serve direct calls from international lines.

"Gaolan will become the largest container port in the western PRD," said an official. But Gaolan's first container berth will not start operating until 2007, and the second will come into service in 2008.

The rail construction, however, is outpacing port development:

The construction of the first rail link to Zhuhai will start this year. It will start in Guangzhou, run inland through the west PRD, and end at Gaolan Port, giving the port better accessibility to cargo from inland cities.

Even though logistics costs may be high at the moment, looking at total cost, companies may still start making their move to the West due to other rising costs in the supply chain:

The east PRD currently remains the stronghold of manufacturing in Guangdong, said Dickson Ho, an assistant economist at the Trade Development Council of Hong Kong. But investors are showing interest in moving to the west PRD with rising costs in Shenzhen. "Some Hong Kong companies are interested in setting up factories in the west PRD, especially Zhongshan," said Ho. "Lower operating costs is the primary reason for manufacturers to Go West in the PRD."

One indicator of the rising costs on the east side is Shenzhen's decision to raise its monthly minimum wage by as much as 23 percent, from US$86 to US$106, with effect from July.

It seems Zhongshan is becoming a hi-tech industrial engine similar to Changzhou on the YRD:

The Zhongshan Torch Hi-tech Zone, an industrial park, meanwhile, is attracting electronics and auto parts manufacturers such as Canon, Suitomo, and Itochu. Zhongshan's trade volume from January to May this year totalled US$8.99 billion, a 29.5 percent surge. One of its subordinating districts, Shunde, ranked as China's second most wealthy county in 2005, right after Kunshan district in Suzhou.

In the end, Hong Kong remains the transhipment point of choice, and most efficient node in the PRD network of ports and manufacturing centers:

Ports in the western part of the PRD are offering various initiatives to investors to help it boost its container traffic. Hong Kong is expected to benefit from the west bank developments as it has been the favourite port of shippers in the region.

The usual route for West PRD cargo for overseas markets is via Hong Kong, said Louis Lee, general manager of Yusen Air and Sea Service (Hong Kong). "It is unlikely cargo from the west bank will be trucked to Yantian for export, as the cargo originating from the area can be easily and more cheaply exported through Hong Kong by barge," he said.

Ho of the Trade Development Council added: "The surge in barge transport from the West PRD to Hong Kong over the past year clearly reflects that it's a cost-effective way, compared with land haulage cum border crossing."

Hong Kong's terminals have proactively addressed this situation, launching initiatives to streamline operations so that the barges can come onshore more quickly, expediting offloads especially for barges with less than 10 boxes, and making it possible for same day-return for barges.

However, it is inevitable that some of the up-and-coming ports will skim business away from Hong Kong for a variety of reasons:

Meanwhile, Nansha, together with Guangzhou's bulk cargo port Huangpu, has jointly launched a South China public feeder express, particularly to attract cargo from Zhongshan and Guangzhou's Panyu district. Leaving from Zhongshan and Panyu to the nearby Nansha Port three days a week on barges, boxes can be exported at a much lower price than going through Hong Kong. Shenzhen's other container port, Shekou, has also made efforts to snatch a part of the West PRD cargo, launching an initiative with the co-operation of the Customs.

I am hoping I can make a visit to the PRD region sometime within the next year to see the port dynamics and explore further some of the up-and-coming cities to the west of Hong Kong. In the meantime, I appreciate any comments from those who have been to the area and have some insights or impressions to share.

Comments

Hi Sean:

Go West of HK? Kunming? I must admit that when I think of the Go West Strategy, I think it generally refers to West of Shanghai, up the river. Changsha, Wuhan, Chongqiing, Chengdu (most of Hubei and Sichuan in fact)...These manufacturing powerhouses seem to be the real focus of the campaign. Thus, given the road infrastructure development west from Shanghai, I suspect that these cities and a good deal of the Go West improvements will not generally end up being serviced by the ports of HK, Yantian, Shikou etc. Perhaps when you take your trip to the PRD, you might focus more on the potential for continued regional development around Guangdong province. Is there still steam left in the S. China engine? What is the future of the region? That is something I would love to better understand. Understanding the potential for logistics growth in combination with the Go West campaign, however, might be better understood as an effort to connect the cheap manufacturing labor in Central China to Shanghai. These are just my thoughts. I would love to hear from others if I am mistaken.

Thanks for all the comments and perspective. I agree that the the biggest "Go West" drive seems to be along the YRD, at least from my experience visiting Shanghai, Jiangyin and Nanjing; as well as from my personal research. And like you pointed out, much of any logistics infrastructure and business development seems to be in a "follow the manufacturer" approach. Though, perhaps others can confirm such a general trend.

Using the metaphor I have used in the past, build an "island of connectivity" (manufacturing base) in a remote area and then build up high-performance supply chains linked to the Coast based on existing yet underdeveloped links already in place.

the cities of Zhuhai, Dongguan, and Shantou all rank about the same for me. We have operations in 2 of the three and they are all essentially low end factory complexes with a lot of unskilled (read cheap) labor who work on component/ basic assembly items.

Chris - to your point of how the South can leverage the west, I am of two minds: (1) the west will leverage low cost bases to produce components that will then be assembles near sea ports for export. as skilled labor comes up in areas like DG, Zhuhai, and Shantou, there is an opportunity to grab some of that subassembly/ final assembly work.

My other mind says that they cannot. that the "go West" strategy will create two models for success: (1) International firms will focus on high tech intangibles (R&D, Software, etc) and back office outsourcing and (2) International/ domestic manufacturers will leverage low manufacturing costs to produce domestically consumed items.